Carriers Increasingly Picky About Where They Fly

United Airlines operates its second-largest hub at Denver International Airport, providing well over 400 daily flights to dozens of cities.

Yet the carrier doesn't offer nonstop service from Denver to any of its coveted overseas destinations.

Frontier Airlines flies from Denver to nearly 50 cities in the United States, and recently announced its expansion into Canada. Yet it doesn't offer flights to Boston, Charlotte or Miami, creating a noticeable hole in its route map.

For the average traveler, trying to figure out why airlines fly - or don't fly - to certain cities can be an exercise in futility.

No wonder: Choosing routes is a complex, time-consuming task that ultimately boils down to figuring out which flights will be profitable.

Carriers must analyze everything from demand and competitive issues to aircraft capabilities and airport costs. They also must weigh whether to add service to an existing market or start flights to a new city.

Each carrier uses its own methods and criteria to determine whether or not flights will be profitable because a route that works for one airline doesn't always prove successful for another.

"It's a very eclectic process," said George Hamlin, a Washington, D.C.-based airline consultant. "As much as it may seem to be true, airlines don't randomly select cities. They choose them very, very carefully."

There are good reasons airlines take route planning so seriously. It's an integral part of their business, and they can sink or swim financially depending on where they fly.

That's especially true today, when high fuels costs and intense competition are putting a squeeze on the industry.

U.S. airlines have lost more than $40 billion in the past five years, and most carriers continue to hemorrhage money. Two of the nation's largest, Northwest Airlines and Delta Air Lines, are in bankruptcy protection. Two others, United and US Airways, recently emerged. The industry's financial problems also have spilled over to low-cost airlines, which traditionally have been profitable.

With that as the backdrop, making sure a new route or flight is profitable is as important as ever.

"Obviously, airlines are doing a lot of other things, but they're fundamentally flying people from point A to point B," said Webster O'Brien of industry consulting firm SH&E in Boston. "Understanding how to do that profitably is on the short list of activities critical to success."

Frontier, for example, does not offer service to Boston, even though some of its competitors fly there from Denver. The carrier, which is based in Denver and is the city's second-largest airline, isn't sure it can make money on the route and believes it has better opportunities in other cities.

"We've looked at Boston, and every time we do it doesn't quite cut it," said John Happ, Frontier's senior vice president of marketing and planning. "It's too far, and the market is quite competitive. The downside exceeds the upside."

For one, Boston is farther away from Denver than most of Frontier's other markets, meaning fuel expenses take a bigger bite out of profits, Happ said. Mix in what Frontier sees as a high number of flights already serving the city in relation to demand, and the route just doesn't make sense for the carrier right now.

A city that Frontier determined does make sense, however, is Calgary, Alberta. The carrier recently announced it will launch two daily nonstop flights there from Denver starting in late May, citing strengthening business ties and an increase in demand for travel between the two cities.

Frontier also feels it can lower fares and, therefore, glean passengers from carriers that currently serve the route.

As in every business, demand is one of the primary requirements for attaining profitability in the airline industry. An airline, after all, won't make money flying empty planes.

So carriers access a bevy of data that help paint a picture of demand, looking at how many flights serve the route as well as how many seats that represents, how full the planes are and how much other airlines are charging.

Part of the process involves determining how much connecting traffic new service will generate. If United wants to add a daily flight from Denver to Las Vegas, it looks not only at how many passengers might fly that route but also at how many travelers it might be able to get to fly from, say, Washington, D.C., to Las Vegas, with a connection in Denver.

"We look at what the specific demand is between nonstop points, essentially how much demand there is in the local market," Knight said. "But we're also looking to maximize our overall network."

Connecting traffic was a key consideration for Southwest when it was determining which cities to serve from Denver.

The carrier, which launched service at Denver International Airport in January, settled on Las Vegas, Phoenix and Chicago - three of its largest hubs. By flying to Phoenix and Las Vegas, Southwest can connect Denver passengers to its other hubs on the West Coast. By flying to Chicago, it can connect them to its markets on the East Coast.

"Profitability is a primary factor," said Lee Lipton, who works in strategic planning at Southwest. "But we're also looking at which markets we think will generate the most traffic and how well they will provide connectivity into the rest of our system."

Competition is another huge factor. Typically, the more airlines that serve a route, the harder it is to make a profit on it. That's one of the reasons airlines are struggling to make money now. Fares have remained low because of intense competition across the United States.

While that's good news for consumers, it's been difficult for airlines to raise airfares enough to cover the rising cost of jet fuel.

Frontier doesn't think it can charge enough money for fares to Boston to make a profit in part because United, US Airways and low-cost carrier JetBlue already serve the market. The competition from Denver to Calgary, however, is a bit different. United and Air Canada both offer nonstop service between the cities, but Frontier has a lower cost structure than those airlines and can charge less.

Along the same lines, Southwest - the nation's largest low-cost carrier - felt it could lower fares in Denver and attract more passengers here in general, despite competition from United and Frontier.

In some cases, competitive issues can trump profitability. Airlines, particularly larger ones, sometimes start service or flood a competitive route with flights knowing that it's unlikely the additions will make money. Their goal: maintain or increase market share.

"Airlines have a market-share mentality," Hamlin said. "Competition is a very powerful force. For some airlines, it might make sense to take a short-term loss to get a long-term gain."

American Airlines, for example, recently added some to compete with Southwest. The carrier said the new service won't necessarily be profitable but called it a necessary move to keep passengers from flying its rival.

Competitive forces and customer needs also can force an airline to consider adding unprofitable flights. Airlines often have several underperforming flights on popular routes but keep them so they can provide a breadth of options throughout the day.

"We need to have a flight that leaves at that time to be relevant to business travelers," Happ said. "You've got to have flights that give you a span of coverage there or you're going to be marginalized."

A host of other factors help airlines determine whether or not they can make profits on a given route.

Airport costs, for example, can lure or deter carriers to a particular area. Take Southwest, which left Denver 20 years ago because it felt the fees to operate here were too high. In recent years, Denver International Airport has been able to reduce the amount it charges airlines, a key reason behind Southwest's decision to return.

Airlines also are limited by the number of gates they have at a particular airport. And then there's the tough-to-master issue of timing. Airlines typically order new planes well in advance and plan accordingly for growth.

Sometimes an airline has many promising markets but not enough new planes to capitalize on the opportunities. In those cases, it's about choosing the best possible routes and flights, leaving some opportunities on the table. Market conditions can also change for the worse from the time a carrier orders a plane to the time it's delivered. Last year, several airlines were forced to quickly reallocate planes and change plans for new jets after hurricanes severely damaged New Orleans and Cancun.

Given the complications involved, airlines often make the wrong decisions when it comes to their routes. More than 160 airlines have filed for bankruptcy during the past two decades, and several are on the verge of failing.

The key, analysts say, is to admit - and correct - mistakes quickly.

Airlines also must avoid making decisions based on emotion and personal preferences, a major pitfall that has doomed other carriers.

"It is an economic analysis, but the problem is that there's also an ego factor at many airlines," said Stuart Klaskin, a Miami- based aviation consultant. "That's when a CEO says something like we need to have a presence in the Denver-to-London market even if it loses money because everyone else has it. I can't tell you how many times I've seen that. It's one of the biggest mistakes an airline can make."

(E-mail Chris Walsh at walshc@RockyMountainNews.com.)

(Contact Chris Walsh of the Rocky Mountain News at www.rockymountainnews.com.)